Taxing times - how to prepare your business
Know when to fold ... businesses should consider writing off bad debts to customers so they can claim the deduction for the loss in the current financial year.
With the end of financial year fast approaching, it’s time for small businesses to start getting their tax in order and gearing up to take advantage of some law changes coming into force in the new financial year.
Glenn Cosgrave of professional services firm Bates Cosgrave says that from July 1, small businesses will be able to write off 100 per cent of any asset they acquire for less than $6500, compared with assets of up to $1000 for the current financial year. The Australian Taxation Office defines small businesses as those with a total turnover of less than $2 million a year.
“You might want to consider if you’re going to run around and buy things soon to check that it’s not going to disadvantage you,” says Cosgrave.
Furthermore, if businesses buy a motor vehicle they can receive an immediate $5000 deduction and claim the rest under normal depreciation rules
Businesses should also be paying their employees’ super by June 30 if they want to receive tax concessions. Cosgrave says that although businesses can make payments for this years’ super as late as 28 July, they won’t receive a deduction unless the money is physically paid before the end of the financial year.
For business owners who are paying themselves super, those aged over 50 should consider putting up to $50,000 into super to take advantage of tax concessions before the limit drops to $25,000. Likewise this payment must be physically received by the super fund for the deduction to apply.
Cosgrave’s colleague Matt Zhou says while the end of the tax year is important, businesses should not leave everything to the last minute.
“It’s much better that we can look at a client’s situation along the way to ensure that they have the right tax structure in the first place,” he says.
A lot of businesses are now keeping a closer eye on their tax affairs than the traditional twice a year check, which allows them to vary their tax instalments more easily if their situation changes.
Marc Peskett, a partner at professional services firm MPR Group, lists other things businesses should consider doing before the tax year ends.
Businesses should consider writing off bad debts to customers so they can claim the deduction for the loss in the current financial year, he says.
If the business is carrying stock that is unsalable it should be scrapped to claim the tax write-off. Likewise, if the sale price of stock is now below cost there is also a tax write-off available as a result of that loss.
Some businesses might like to defer revenue by sending out invoices for major projects a little later. This will reduce the current year’s tax bill, but they will obviously have to make it up in the following year.
Businesses should also check on their tax obligations, says Peskett. “It’s not only the tax at the end of the year but you may also have ongoing instalments due,” he says.
For instance, if this is a business’ first year of profit or its profit has grown significantly, the tax office will levy the business for instalments in the following year.
Peskett says he sees many small businesses make the mistake of letting their tax strategy drive their business strategy. “If you look like you’re going to pay tax, don’t just spend money for the sake of saving 30 cents in the dollar,” he says. “Make sure it’s worthwhile and it’s going to help business grow and thrive.”
Kyle Clarke, a director of small business consultancy Start Grow Run, says businesses should consider asset sales to help reduce their capital gains tax.
“If you make a capital gain on the sale of an asset this financial year, you could consider selling a poorly performing investment before June 30,” he says. “This can enable you to use the capital loss to offset your capital gain.”
Alternatively, businesses could delay the sale of any profitable assets until after June 30 to defer paying capital gains tax.
Bates Cosgrave’s Glenn Cosgrave says small businesses should also try to bring forward deductable expenses, such as rent and insurance – even accountants’ fees – into the current tax year to get the deduction this year.